WE ARE big believers that our investing should mirror our personal set of values - investing with our heart and our head.

While this approach cuts out a lot of possible investments, it certainly doesn't compromise performance, with a range of managed funds and individual portfolios outperforming many more widely held stock mixes.

If you want proof, just pick up your superannuation fund's latest report, as most have a sustainable investment option, and most have outperformed.

According to the Responsible Investment Association of Australasia, the average one-year return for responsible investment funds is 21.45 per cent, compared to 18.14 per cent for the average large cap fund and 19.74 per cent for the ASX 3000 Accumulation Index.

If you're interested in taking this heart-and-head approach, you have three main options.

Broadly defined into two categories - ethical and sustainable - these are investment funds with share holdings screened according to a particular set of rules.

Sustainable funds pick companies they rate as being sustainable for the long term. This usually means investments in things like wind farms, green technology, clean energy and sustainable agriculture, but also other companies that toe the line in the environmental stakes.

The ethical category takes out what they define as non-ethical investments, screening out companies in areas like gaming, alcohol, tobacco, weapons, pornography and animal testing.

However, there are varying approaches to the screening process from fund to fund, so it pays to read up on how a prospective fund handles the process before buying in.

The definition of "ethical" can vary widely.

For example, some take a "best of sector" approach, which allows them to invest in the top 20-30 per cent of companies in every sector, ranked on sustainability performance grounds.

This means you might not get a perfect fit for your values, so check up on how it all works.

As to investing, shares in these funds can be bought individually just like any other share on the ASX.

SUPERANNUATION

Most large super funds offer a sustainable option similar to responsible managed funds.

This is a great option for people without an individual investment portfolio that still want to invest with their heart, especially as changes to super investments are easy to make.

Again, it's all about digging in to the fund fine print to ensure that it's in line with your values.

You can also invest in a mix of options for those who may want to allocate a percentage of their super into responsible and the rest in more traditional options.

The other alternative with super is to look at individual stock selection, which a lot of funds will allow you to do for a slightly higher fee.

INDIVIDUAL INVESTMENTS

If you are up for doing your own research, there's no reason you can't pick your own responsible portfolio. Just keep in mind that you can't judge a company by its cover. For example, did you know that Woolworths is one of the world's biggest poker-machine operators?

I'm not saying there's necessarily anything wrong with the business - gambling machines are often very profitable investments - it's just that you wouldn't think Woolies held these investments given they're the fresh food people.

Likewise, Coles is owned by Wesfarmers, which also has coal mines. Don't let that put you off, though.

As long as you set out a clear framework for what you will and won't invest in, do research and treat it as an ongoing learning exercise, it will be no more time-intensive than selecting any other investment.

The latest spate of coral issues on the Great Barrier Reef prompted a friend of mine to review his portfolio to ensure none of the agriculture or mining businesses he invests in were contributing to the issue.

The Responsible Investment Association of Australasia is a good resource to find your feet in the area and look at industry performance benchmarks.

Just don't lose sight of investment fundamentals among the feel-good factor of buying businesses that make your heart sing…

BUCKLE-DOWN AND TOP UP

A few recent studies have made us think about our super contributions and the level of fees we pay.

With retail super funds charging about 2 per cent in fees, and industry funds about 1 per cent, the average Australian pays about $2300 in super fees annually. But from a fee perspective, the boom in self-managed super funds may be misguided for those with small balances.

Unless a self-managed fund has at least $400,000 under investment, it is more cost effective to be in an industry fund.

Previously, the general rule of thumb was a minimum $200,000 under management for a self-managed fund to stack up. But the increasing cost of compliance has changed all that.

Also, a member joining the workforce at age 25 on a salary of $40,000 is now conservatively expected to accumulate a retirement nest egg of $500,000.

But consultants Deloitte have done the sums, which show even $1 million won't be enough to sustain a comfortable retirement.

With inflation and longer life expectancy, a 30-year-old on $60,000 a year will need to retire on $1.6 million at age 65... for women, it's $1.76 million.

To achieve these levels, superannuants need to top up an extra 3-5 per cent from their income.

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